Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 20P
In mid-February 2016, European-style options on the S&P 100 index (OEX) expiring in December 2017 were priced as follows:
| Dec 2017 OEX Index Options | ||
| Strike Price | Call Price | Put Price |
| 840 | 88.00 | |
| 860 | 76.30 | 102.21 |
| 880 | 111.56 | |
Given an interest rate of 0.40% for a December 2017 maturity (22 months in the future), use put-call parity (with dividends) to determine:
- a. The price of a December 2017 OEX put option with a strike price of 840.
- b. The price of a December 2017 OEX call option with a strike price of 880.
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Students have asked these similar questions
2) Below are call and put option prices for Exxon, expiring on November 17, 2017. The prices are from
September 8, 2017. The price of the stock on September was $78.81. Given all this, what annual interest
rate is implies by these prices?
Some hints:
Use put-call parity, and the exponential formula for the price of money.
There will be several implied interest rates, one for each strike price.
You have to take a natural logarithm to calculate the answers.
The natural log of exp(A)=A.
Calculate interest rates to five digits
Strike
Price
75
77.5
80
82.50
85
Put
Call
Price Price
4.61
2.69 1.64
1.30
0.94
0.51
2.90
4.84
0.16 8.90
Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 1,950, and the June maturity contract is at F0 = 1,951.a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.
In the Table below are the Numato Ltd's PUT Option prices (expiring on February
2022, March 2022 and April 2022) for various Strike Prices as on 15th January,
2022.
Current Stock Price of Numato Ltd. is Rs 590.
Determine the Intrinsic value and time value of PUT options (expiring on
February 2022, March 2022 and April 2022) for various given Strike Prices at
current price of Rs 590.
Strike February Intrinsic Time
Put Price Value
March Intrinsic Time April Intrinsic Time
Value Put
Price
Price
Value Put
Value
Value
Value
(Rs.) (Rs)
Price
(Rs)
(Rs)
500
0.50
3
5.5
550
2.50
9.5
14.5
600
17.5
28
34
650
59
62
66
700
109
109
109
Chapter 20 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Below is an option quote on IBM from the CBOE Web...Ch. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Consider the October 2015 IBM call and put options...Ch. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - In mid-February 2016, European-style options on...Ch. 20 - Suppose Amazon stock is trading for 500 per share,...Ch. 20 - Consider the data for IBM options in Problem 3....Ch. 20 - You are watching the option quotes for your...Ch. 20 - Explain why an American call option on a...Ch. 20 - Consider an American put option on XAL stock with...Ch. 20 - The stock of Harford Inc. is about to pay a 0.30...Ch. 20 - Suppose the SP 500 is at 900, and a one-year...Ch. 20 - Suppose the SP 500 is at 900, and it will pay a...Ch. 20 - Prob. 29PCh. 20 - Suppose that in July 2009, Google were to issue 96...
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